Can SBA fund a partner buyout inside an EPC?
Short answer
Yes, between existing Eligible Passive Company (EPC) owners, if the selling owner has held the property at least 36 months. A 7(a) loan cannot fund a partial change of ownership in the EPC. A 504 must leave the buyer owning 100%. Source: SOP 50 10 8.1, App. 15, Para. A.4.a.
Yes, in limited cases. 13 CFR § 120.111 lets an EPC use proceeds to finance a change of ownership between its existing owners. SOP 50 10 8.1 adds limits that depend on the program.
On every EPC buyout
The buyout must be between existing owners of the EPC. The selling owner must have held the real estate or personal property for at least 36 months (Section A, Ch. 2, Para. A).
On a 7(a) loan
- A partial change of ownership in the EPC cannot be funded, because of 13 CFR § 120.111 (Appendix 15, Para. A.4.a).
- A partial change of ownership in the Operating Company can be funded.
The SOP does not explain how far "partial" reaches inside an EPC. Confirm with your lender before you structure the deal.
On a 504 loan
- The EPC's assets must be limited to real estate or other eligible long-term fixed assets leased to the OC.
- The purchasing owners must end up with 100% of the EPC.
- Limited other assets, such as capital replacement reserves or tax and insurance escrows, are allowed. They must be directly related to the real estate, de minimis and excluded from the project financing (Section C, Ch. 1, Para. C.13).
What EPC proceeds cannot do
Otherwise, an EPC cannot use proceeds to buy a business, its stock or its intangible assets (Section A, Ch. 2, Para. A).
Ask lending partners about your loan
Tell us the amount you need and what it is for. We refer you to lenders that may fund businesses like yours, and it costs you nothing.
Janover Capital LLC is not a lender and is not the SBA. The lender makes the credit decision. A lender or marketplace may pay us a referral fee if we connect you, at no cost to you. Advertiser disclosure.